How Do I Pay the ACA Penalty?

This Q&A column addresses questions from real patients about healthcare costs. Have a question you'd like to see answered? Submit it to AskChristina@nerdwallet.com.

Question:

I left my job in January 2014, and with it, left my health insurance. Because I went seven months of 2014 uninsured before getting new coverage through my new employer, it's my understanding that I'll have to pay a penalty under the Affordable Care Act mandate. How much will I owe and how do I go about paying it?

Answer:

Going without health insurance is a risk, and with the Affordable Care Act's individual mandate, going without could cost you considerably. Between 2 percent and 4 percent of taxpayers are expected to owe a "shared responsibility" payment for going without coverage for part or all of 2014, and as we enter tax season, many, like you, aren't sure where to begin.

Fortunately, as with every blank on your yearly tax forms, there will be lengthy instructions to walk you through reporting your insurance coverage and calculating your penalty. But if you're not enlisting the help of a tax professional, those IRS instructions can seem extremely confusing, so I'll try to put it simply.

Do you qualify for an exemption?

Before you resign yourself to adding this penalty to your tax responsibilities, make sure you don't qualify for an exemption from the individual mandate. The Department of Health and Human Services estimates between 10 percent and 20 percent of taxpayers were uninsured and qualify for an exemption in 2014, far more than those who will be required to pay.

There are several ways you could qualify for an exemption, including if:

bronze level coverage is more than 8% of your household income for the year;

you make less than the "return filing threshold" (which varies according to household size);

or if you experienced a general hardship like eviction, unpaid medical debt or homelessness.

For a complete list of exemption qualifications and how to report an exemption, visit IRS.gov.

Calculating how much you owe

If you don't qualify for an exemption, you'll have to pay. Just how much you owe will depend on several factors, including your income, household size and how many months you went without insurance. For tax year 2014, the payment amount is the greater of two options:

1% of your household income that's over the tax filing threshold for your status, or

Because I don't know your income or household size, let's assume you are single with no dependents, and your gross income is $40,000 per year.

First, we'll calculate how much you'd owe if you had to pay the first option, 1 percent of your income over the tax filing threshold. For a single taxpayer, the tax-filing threshold in 2014 is $10,150. We'll start by subtracting that from your annual income, as only the amount over this threshold is subject to the penalty. We're left with $29,850. One percent of $29,850 is $298.50. But you didn't go the entire year without insurance--only seven months. Your monthly fee would be $24.875 ($298.50/12); so going without insurance for seven months would cost $174 when rounded to the nearest whole dollar ($24.875 x 7).

Because the shared responsibility mandate requires you pay either 1% or $95 per adult, whichever is greater, you would owe $174.

For help determining your exact penalty, use the instructions for IRS form 8965. If you went the entire year without coverage, you can use this calculator from the Tax Policy Center.

Reporting this penalty on your taxes

The amount you owe will be reported on your 1040 (line 61) and on corresponding lines if you file a 1040A or a 1040EZ. It will be subtracted from any refund you might be due, or added to any additional amounts you owe.

As with all tax payments, you'll be expected to submit your payment when you file. But that's not a possibility for everyone.

If you can't afford the penalty

Though the IRS expects any owed amounts to come when you file your tax return, they will work with taxpayers who can't pay in full. Unlike other tax liabilities, the IRS is prevented from using liens or levies to collect on the shared responsibility payment.

If you can't pay, you should still file your return and all appropriate paperwork by the April 15 deadline. Then, call the IRS to discuss payment options at 800-829-1040. You may be able to arrange and extension or a payment agreement.

While you mentioned having health insurance coverage now, it's important to note that penalties for not having coverage will continue to climb. For tax year 2015, you'll pay 2% of your income over the filing threshold, or $325 per adult and $162.50 per child.

Tax season always brings its share of frustrations, and with new requirements under the ACA, you're certainly not the only one concerned about changes this year. Take your time to carefully read all of the instructions when reporting and filing your tax returns this year, and don't be afraid to seek help when you have questions.

15 Super Weird Taxes

15 Super Weird Taxes

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Sliced Bagel Tax

You might want to think twice about getting that schmear. In New York City, bagels that are sliced or prepared are subject to sales tax, whereas whole bagels are not, according to the Wall Street Journal.